How new law likely will affect your taxes
If a sit-down year-end tax review isn't part of your regular process with your tax adviser, this may be the year to get that process going: The Tax Cuts and Jobs Act the Trump administration muscled through Congress last year arrives in some potentially big ways with 2018 taxes.
Some caveats before we get to the details:
• I'm not a tax guy. My role is to raise tax questions and report an expert's answers to you.
• My source for most of the material in this column is Shane Winters, a CPA at Dowell Group, a Palatine-based CPA and advisory firm and, so you know, the professionals who handle my business and household taxes.
The Dowell people are good people. It's likely that the accountants, CPAs, enrolled agents and bookkeepers you've been using are equally aware and insightful. What matters is that the changes which will affect most of our 2018 tax returns seem to be impactful enough that the year-end tax planning meeting may be more important than usual.
Among the potentially biggest changes for business owners:
• The C Corporation tax rate has changed, dramatically. The 35 percent rate, the effective result of a double taxation that led to a lot of teeth being gnashed, has been reduced to 21 percent.
A small cheer is in order - unless your C Corp. operates in a service sector where businesses were exempted from the change by Congress. Among those services that won't benefit are attorneys, consultants, those in health care, brokers and - well, talk to your accountant.
• More positively, if your business is an S Corp., business owners can deduct 20 percent of the pass-through income.
The deduction, Winters says, works for income from partnerships, LLCs and sole proprietorships - in addition to the S Corporation.
There are several other issues, some of which may not affect your tax situation at all. (That's why you talk to your tax people.) Among the changes:
• New tax brackets.
• The standard deduction has been increased.
• Deductions for personal and dependent exemptions are suspended.
• The estate and gift tax exemptions are higher.
• The medical deduction level was raised, though it seems uncertain (to me) whether the new deduction will last past this year. Nonetheless, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income. The deduction requirement had been that such expenses must exceed 10 percent of adjusted gross income.
• There's been a change, mostly negative, in allowable entertainment-and-meal deductions. Meals are OK, Winters says; tickets for the Bulls game that follows are not.
• More positively, Section 179 depreciation limits for qualifying equipment increased - to $1 million. The limit on equipment purchases is up; so is bonus depreciation.
Of course there's more, which likely makes your tax planning meeting especially important - and, Winters adds, a good time for business owners to ask questions.
• © 2018 Kendall Communications Inc. Follow Jim Kendall on LinkedIn and Twitter. Write him at Jim@kendallcom.com. Read Jim's Business Owners' Blog at kendallcom.com.